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On This Day - 21 NOVEMBER 2019
What I Expect from the Stock Market Now
Hi this is Vijay,
Today, I want to share my view on the stock market. I'd spoken about this topic briefly in the Investor Hour podcast - you can listen to it here - and today, I go into some detail.
The markets are at life-highs and I believe if you play it right, you could make big gains over the next few weeks.
In today's video...
Enjoy the video!
This is Vijay Bhambwani and I'm back again with you to talk about the broader outlook on the equity markets.
During my podcast, I briefly touched about the outlook for the equity markets at least till the budget of 2020.
We're gonna take this conversation a little bit further here.
I stand by my view that the equity markets look either firm or even upwards up to the budget of 2020. The reasons are not very far to seek.
There is a constant flow of news or hope from the government about reforms about potential good news coming in for the individual taxpayer and a whole lot of other measures which might be announced.
While nothing is crystallised yet, the markets are a sum total of all the sentiments prevalent within traders at any given point in time.
And right now, it's hope and hope is a positive aspect, which is why the equity markets are looking positive as of now.
So, the firm thing that people are expecting is after a cut in corporate tax slabs, the next logical step for the honourable Finance Minister Nirmala Sitharaman would be to liberalise the tax slab for the individual taxpayer.
If this was to materialise, this would be a game changer for the equity markets because an average saving of an Indian household would go up because the tax outgo would be reduced.
And if at all the tax slab itself, along with the threshold of the tax coming in, which is currently at approximately Rs 5 lakh, if you were to add the section 80 cc and other benefits that you accrue by way of saving some money in government appointed schemes, even higher.
So, if at all even the threshold was to be raised along with the tax slab itself was to be liberalised, that would be a double positive for the markets which could take the markets well past the all-time highs.
The reason why I'm harping about the budget is because the outlook after the budget will depend on what is actually announced in the budget.
Now there will be some anticipated moves from the government, which are almost like a standard operating procedure. Come any government, whatever party is in power is expected to do this.
So, what I would expect is first, higher tax slab on the vice industry. By vice I mean, tobacco, alcohol, paan masala, gutka, junk foods, etc.
I would expect even more sops for the fertiliser industry because India has a problem of shortage of food. So fertilisers will get even more sops.
In addition to these, I would expect, like I said, the tax lab to be liberalised for the individual.
The other aspect, I feel would get more sops would be the auto industry. The reason being a tremendous slowdown in the passenger and the commercial vehicle space.
Another set of positives that could occur and which typically over the past have occurred, would be a boost to the export sector. India will need more foreign exchange. So, my guess is the exporters which are the net foreign exchange earners for this country, will get even more sops.
The reason why I said what will be announced in the budget, will determine what happens to the market after the budget, is that expectations do invariably tend to run farther ahead of reality.
So maybe on average Indian investor is expecting a little more than what can be delivered. The budget itself will raise the curtain on what we have expected and what we have got vis-a-vis that. So, the market outlook beyond the budget needs to be given a fresh look. I'm sure we will come back in the future and discuss this topic after the budget.
Not yet again, one needs to be fully prepared as a trader and as an investor, for no matter how slim the possibility of adversity is, one must always give that door open.
So, do be extremely prepared about the fact that certain industries like the vice industry for, say, alcohol, tobacco, junk foods.
If you are invested in the stocks of these companies, there might be a possibility that this sector might witness our temporary decline after the budget. The reason why I'm saying temporary is that intoxicants like alcohol and cigarettes, tend to be demand inflexible.
This temporary enlightenment that we get after the budget of a cigarette, say, going up from Rs 3 to Rs 3.5 per stick, is that we stop smoking for maybe two days.
But on the third day itself, we pick up that cigarette and start puffing away. So, the impact on the sector tends to be short lived.
So, in the near term, if it all there is higher tax on these items, you might see a temporary dip in the share prices off these companies in this sector.
Fertilisers, like I said, either the tax slab will be kept constant or the subsidy might even be stepped up. Let us not forget we've had a fairly ample monsoon.
So next year's crop season will be capitalised by the government to eradicate any kind of short fall in food stuff. My expectation is extremely high about the fertiliser sector.
Exports... here again, our exports have been sluggish and in order to strengthen the Rupee and counter the slowdown that we're witnessing in the domestic demand consumption patterns, it would be a good idea to incentivise the export sector and keep our factories churning out goods.
The other aspect is expectation of long term capital gains and the extreme amount of hope that exists on the STT or the securities transaction tax front.
Long term capital gains, we will see if the Honourable Finance Minister, gives us any kind of relief.
STT, I'm not really all that sure because so far, successive governments have refused to scrap this tax. You might at best expect a marginal reduction in the STT if it all but then, I would actually wait for the event rather than pre-empt it.
Let us now turn focus on some sectors which have a higher than average probability of being bullish both before and after the budget.
I would lay my bets on adhesives paints and plastics companies, the reason being, after the Saudi Aramco IPO is done and dusted, crude oil prices are likely to come down and petrochemicals form the major chunk of raw materials for these three sectors.
As and when raw material prices reduce, profitability in this sector is expected to have a quantum jump. So, my expectation is that these sectors should be evergreen both before and after the budget for you to park your funds in this space.
With this I will bid adieu till we meet again shortly and do not forget to join me on 26th of November at 5 pm, for my summit, where I will take you through the process of how to think in the markets and to generate fast cash. How to take money out of your trading terminal and put it in your pocket.
See you there on 26th November at 5 pm.
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